Investors Seek Clarity From The Midterms: 5 Things The Global Markets Are Talking About Today

It not a surprise to see a mixed picture across global equity markets overnight as investors are very much in a "wait-and-see mode" ahead of Tuesday's U.S. midterm elections.

The latest polls suggest the Democrats have a good chance of winning the House and the Republicans have a good chance of retaining the Senate. In that scenario, consensus sees the U.S. dollar and interest rates easing on the view that chances for any further U.S fiscal stimulus are reduced, and thats assuming that political gridlock has not already been priced-in.

But, if the Republicans surprisingly hold Congress, the dollar, stocks and Treasury yields would get a lift on the promise of Trumponomics 2.0.

Elsewhere, Euro bourses have edged a tad lower alongside U.S futures, while Asian stocks advanced, taking their cues from Wall Street Monday.

Sterling again found some support on further Brexit hopes, while U.S. Treasury yields and the dollar were steady.

With all this in mind, here are five things the global markets were talking about on Tuesday.

1. Global Stocks Post Mixed Results

In Japan, the Nikkei average rebounded overnight, tracking gains stateside Monday, despite Apple suppliers falling on a report that the tech giant has scrapped plans to boost production of its new iPhone. The Nikkei rose 1.1 percent, recouping much of the previous sessions 1.6 percent losses. The broader Topix gained 1.2 percent.

Australian shares ended higher overnight as metals and mining heavyweights rallied on higher iron ore prices, although trading volumes were cautious ahead of Tuesday's U.S. midterms. The S&P/ASX 200 index rose nearly 1 percent at the close of trade. In South Korea, it was a similar scenario, the Kospi index ended higher, up 0.61 percent, but gains were capped on investor caution. The index is down nearly 10 percent in the past month.

In China, stocks ended lower overnight despite a number of policy moves to support equity markets amid worries over the possible impact of a new technology board. At the close, the blue-chip CSI300 index was down 0.6 percent, while the Shanghai Composite Index lost 0.2 percent.

In Hong Kong, stocks erased early losses and ended higher overnight on promised targeted policy steps to support private companies. At the close, the Hang Seng index was 0.7 percent higher, while the China Enterprises Index was up 0.8 percent.

2. Oil Prices Fall On Iran Sanction Exemptions

Oil prices remain under pressure, weighed down by sanction exemptions from Washington that will allow Iran to keep exporting to some of their largest clientele, as well as by concerns that an economic slowdown may curb fuel demand growth.

Brent crude oil futures were down 0.7 percent at $72.69 a barrel, while U.S West Texas Intermediate (WTI) crude futures were at $62.86 a barrel, down 0.4 percent from Monday's close.

The Trump administration has given a six month reprieve to eight importers: China, India, South Korea, Japan, Italy, Greece, Taiwan and Turkey. These are Iran's biggest buyers.

While Iran's crude exports could fall to little more than 1 million bpd this month, the market believes that figure could rise again next month as importers — including China, Japan and South Korea — use their waivers to order crude from Iran.

And finally, growing concerns over the prospect of a global slowdown amid the ongoing U.S.-China trade war are also weighing on prices.

3. Italian Yields Rally On Budget Worries

Italian government BTP yields again have backed up after eurozone finance ministers called on Italy to change its budget, while broader eurozone bond markets are little changed ahead of U.S congressional elections.

Italian BTP yields are 5-6 bps higher on the day. Italy's 10-year bond yield rallied as high as 3.39 percent Tuesday morning, pushing out the gap over German Bund yields to 295 bps from 289 bps late-Monday.

Germany's 10-year Bund yield is holding steady at 0.43 percent, while French 10-year government OAT yields are also flat at 0.80 percent.

Elsewhere, the yield on U.S 10-year notes has increased less than 1 bps to 3.20 percent, while in the U.K., the 10-year Gilt yield ticked up to 1.515 percent, reaching the highest in more than two weeks on its seventh consecutive advance.

The Reserve Bank of Australia (RBA) left its Cash Rate Target unchanged at 1.50 percent (as expected) and reiterated their stance that low rates are supporting the economy. They raised 2018 and 2019 GDP forecasts from 3.0-3.5 percent.

4. U.S Dollar Remains Little Changed

The buck was little changed as investors focus shifts to the U.S. midterm elections.

The market expects an 85 percent chance that Democrats take the House and 85 percent chance Republicans hold the Senate. However, if the GOP surprisingly holds onto its majority in Congress, the USD, equities and Treasury yields are expected to get a lift on the promise of Trump 2.0.

GBP/USD was a tad lower on news from U.K. Trade Secretary Fox that there are still a number of Brexit issues to be addressed. He reiterated that it was unacceptable for any deal to treat Northern Ireland differently.

5. Eurozone Growth Weakens To Lowest In Over 2 Years

Data Tuesday morning from IHS Markit Eurozone PMI Composite Output Index showed that last month saw the euro area economy expand at its slowest rate for more than two years.

Despite coming in higher than the earlier flash estimate of 52.7, October's final reading of 53.1 was down from the previous month's 54.1 to the lowest since September 2016.

Digging deeper, both the manufacturing and service sectors recorded slower rates of growth during the month.

Following on from September, manufacturing registered the weaker increase in output, posting its lowest growth in nearly four-years, while despite remaining at a solid level. The service sector saw its slowest expansion since the start of 2017.

By country, the strongest increase in activity was again seen in Ireland, while both France and Spain recorded firmer gains in activity.

In contrast, Germany saw growth slump to a five-month low, whilst Italy registered a fall in activity for the first time in four years.

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